Rent income is the money a business earns in an accounting period from leasing real estate or another type of asset. The general ledger is an accounting record that is organized by account, such as cash or rent income. The type of account under which you would classify rent income in the general ledger depends on when your small business collects rent from your tenant.

Upfront Payment vs. Delayed Payment

Accrual accounting requires a business to record income in the period in which it is earned regardless of when payment is received. When you collect money for rent up front, you have yet to actually earn the rent as income and must record the income only after you have earned it. When a tenant occupies your property and you have yet to collect rent at the end of an accounting period, you must record the rent income anyway to apply it to the correct period.

Recording an Upfront Payment

To account for an upfront rent payment in the general ledger, record a debit to the cash account for the amount received and a credit to the unearned rent account for the same amount. The debit increases cash, which is an asset. The credit increases unearned rent, which is a liability, or something you owe. For example, assume your tenant pays your small business $2,000 on Feb. 1 for February’s rent. Debit $2,000 to the cash account and credit $2,000 to unearned rent.

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Income Earned from Upfront Payment

At the end of the month, you must account for the portion of the upfront payment you have earned as rent income in your general ledger. Record a debit to the unearned rent account for the amount of one month’s rent and a credit to the rent income account for the same amount. The debit decreases unearned rent. The credit increases rent income. Using the previous example, debit $2,000 to unearned rent and credit $2,000 to rent income at month-end.

Earning Rent Before Collecting Payment

To account for rent income you have earned but will collect at a later date, debit the rent receivable account by the portion earned, and credit the rent income account by the same amount. The debit increases the receivables account, which is an asset that shows money your tenant owes. For example, assume a tenant pays your small business $4,000 on the fifth day of each month for the previous month‘s rent. At the end of the month, debit $4,000 to rent receivable and credit $4,000 to rent income in your general ledger.

Collecting Rent Already Earned

When you collect money for rent that you’ve already recorded as income, debit the cash account by the amount collected and credit the rent receivables account by the same amount. The credit reduces rent receivable to show that the tenant no longer owes that money. Using the previous example, on the fifth of the month, debit $4,000 to cash and credit $4,000 to rent receivable.